[Click eStock] "Lotte Shopping Secures Earnings Stability... Target Price Up 9%"

Discount Store and Supermarket Division Shows Positive Improvement
Restructuring Effects to Fully Materialize Starting Next Year

[Asia Economy Reporter Minji Lee] Yuanta Securities maintained a buy rating on Lotte Shopping on the 9th and raised the target price by 9% from the previous level to 120,000 KRW. This is based on the assessment that earnings stability is being secured mainly through the discount store and supermarket divisions.

In the third quarter, Lotte Shopping recorded sales of 4.1059 trillion KRW and an operating profit of 111.1 billion KRW. Sales decreased by 6.8% compared to the same period last year, while operating profit increased by 26.8%. Due to the resurgence of COVID-19, the domestic department store same-store sales growth rate was -10.3%, resulting in poor performance and a 30% decline in operating profit.

On the other hand, the discount store and supermarket divisions showed a turnaround. The discount store’s same-store sales growth increased by 2.2%, while the supermarket division slightly decreased by 1.5%. Active reduction of selling and administrative expenses led to operating profit increases of 25 billion KRW and 26.7 billion KRW respectively compared to the previous year. Lotte Homeshopping grew by 19% year-on-year, showing overall improved performance. Culture Works, which had been sluggish due to COVID-19, posted results 52.5 billion KRW lower than last year in this quarter as well.

Researcher Jin-hyeop Lee of Yuanta Securities explained, “The improvement in the discount store and supermarket divisions is positive,” adding, “While the rebound in same-store sales growth is meaningful, profitability has stabilized due to active restructuring.” In the second quarter, despite a 10% decline in the supermarket’s same-store sales growth, operating profit increased by about 10 billion KRW due to reductions in selling and administrative expenses. In the fourth quarter, the recovery of the department store sector, which was sluggish in the third quarter, is expected to contribute to improved earnings.

The effects of restructuring are expected to become full-fledged from next year. The company projected the expected losses of stores subject to restructuring over the next three years to be around 600 billion KRW. Based on simple calculations, an annual earnings improvement effect of about 200 billion KRW from restructuring can be anticipated.

LotteON, the new growth engine, experienced some instability during its initial launch but is gradually stabilizing. The third quarter’s gross merchandise volume (GMV) growth rate was only 3.5%, but it expanded to 13% growth in October, increasing its growth potential.

Researcher Jin-hyeop Lee said, “Although LotteON is underperforming compared to the market growth rate, attention should be paid to the fact that it is gradually finding its footing,” adding, “While there remains a burden from restructuring-related costs, the fact that it is passing through a long tunnel led us to raise the target price by reflecting an upward revision of the investment outlook.”

This content was produced with the assistance of AI translation services.